Rethinking Retail Scale

Not that long ago, retailers ran their online and offline operations in silos. In many cases, they actually competed against themselves in different channels. This is a less-talked-about advantage that Apple has held over traditional retailers ever since it opened its first stores in 2001 – Apple understood that it didn’t matter where transactions happened because every touch point along the way kept shoppers engaged with the Apple brand (and, of course, the real brand engagement began when shoppers took the shiny objects home).

These days, retailers from mass to class see all channels — including mobile — as synergistic and seamless touch points with shoppers and, along the way, scale has been redefined. Retailers’ new criteria for scale are no longer thousands of stores, but they aren’t millions of online impressions or mobile transactions either – it’s all of these combined.
That’s why retailers are paying attention to their online presence once again. But now their focus has evolved from building virtual shopping carts to connecting their sites to their stores. It’s why in-store kiosks and strategically placed signs beckon shoppers to order online and then pick up in-store, as demonstrated by a growing number of new retail formats, including Walmart’s Express concept. Although the Express stores have been portrayed by the media and other observers primarily as a small-format move, building site-to-store scale is a huge part of the Express story that is largely being overlooked. All of those small stores will not only service new customers in neighborhoods that used to only have dollar stores, but they will also serve as pick-up locations for the over 40,000 unique items that Walmart offers online.

Walmart’s site-to-store capabilities have the potential to be its killer advantage over dollar stores, which have built massive scale through store proliferation while largely ignoring online opportunities. Until now. Dollar General’s announcement last month of its online store launch was met with the usual down-market skepticism – some would even say snobbery. Will Dollar General’s customers really buy products on dollargeneral.com? Does Dollar General really think that online sales will move the needle? Who cares, when the site will be able to feed unique products to its 10,000 existing locations?

Target’s decision to bring its online operation in-house came quite close to its announcement that it too will enter the small-format fray with its City Target concept. Coincidence? I think not.
Once Target gets its site-to-store integration up to par, every tiny Target store will have the potential to realize exponential sales that belie the inventory held in the back room.

The days of pure-play e-tailers asserting superiority over traditional retailers appear to be over as well. Gap is planning future store growth for its acquired online pure-play brands, Piperlime and Athleta (even as it announced plans this week to pare down its physical locations for the Gap brand in the U.S.).

The granddaddy of all e-tailers, Amazon, seems to be in the embryonic stages of fulfilling a forecast that I made a couple of years ago, that it would come out of the clouds and form an alliance with a large-scale retailer on terra firma. According to a smattering of online reports, a 7-11 store location in Seattle holds a stack of lockers that, although unbranded for now, actually belong to Amazon. The lockers are part of a beta in which Amazon customers will receive an email notification when their purchases are delivered to a local 7-11. After scanning a bar code on their smart phones, a PIN will appear that opens the locker and releases the goods. If successful, this clandestine beta is rumored to be ready for rollout to 7-11 stores by next summer.

Retailers have redefined scale. Have you?

Bottom line:

Online used to be a facilitation point and brands came to life in the store. Inventory, and brand presence, will in many cases shift online, even as more transactions are conducted in-store.

The supplier and brand community has traditionally gauged its volume potential by closely watching store openings and closings. As retailers soup up their scale, store counts won’t tell the full story.

Retailers are in different stages of building out their next-stage web strategies and the same holds true for scale-building. How are your retail partners building scale and how will you build yours along with them?

To learn more about how retailers are redefining scale and what the touch point transformation means to your retail strategy, join me for my LIMA webinar on 11-16 at 12:00 pm EST. Invite your sales and marketing teams for a one-and-a-half-hour learning opportunity – no travel required!